Ageing Futures

From reading media discussion of demographic issues, one could get the impression that the ageing of European society is an impending disaster of almost apocalyptic proportions. It is easy to lose sight of the fact that ageing is both inevitable and, in certain respects, desirable. The only ways to avoid demographic ageing are to either greatly worsen health conditions or to have substantial and continuing population growth. Given that most Europeans prefer long lives to short, mostly want few children, and do not wish there to be endless population increase, demographic ageing can be seen as a logical consequence of these preferences, and could be judged a measure of our achievement in extending life. However, Europe will experience a form of ‘super-ageing’ in the coming decades; the baby boom cohorts (born in the 1950s and 1960s) are very large, and when they get old this will greatly exacerbate any problems that ageing generates. What should be the response of European societies? The most sensible goal is to stabilise the base of Europe’s population pyramid, making the number of entrants to the labour market each year roughly constant. If each birth cohort is substantially smaller than the one before, as was the case for the last third of the 20th century, it will be very hard in the long run to sustain the economic base of our present social systems. However, this policy goal is more easily stated than realised.

To some extent, immigrants can fill gaps in the age structure caused by low fertility. A shortfall in births in, say, 1990 can in principle be made up for by recruiting migrants aged 25 in 2015 (and most migrants are young adults, generally aged 15-35). The number of migrants needed for such a balancing trick to work can roughly be gauged with reference to the replacement level of 2.1 children per woman. In the EU over the last 20 years, fertility has been about 1.4 or 1.5 (around two-thirds replacement level. In order for the cohorts born around the turn of the millennium (1995-2005) to be as large as the cohorts of their parents, one migrant would need to be recruited for every two births. This is a much higher ratio than has ever been observed for a sustained period in any large European country. In general terms, migration on such a scale may be possible, but it will require a radical change in policies and attitudes.

Moreover, the long run effect of this approach depends not just on the scale of the immigration but also on how many children the migrants have. The logic of intergenerational replacement applies to migrants just as much as to the native born. Since migrants grow old too, unless they replace themselves more effectively than the native-born population, they do not ‘solve’ the problems of ageing. Only if migrants have higher fertility than their hosts will they help alleviate the consequences of ageing. From this point of view, it is clear, more or less everywhere, that the fertility of migrants tends to converge with that of the host population. The speed of convergence varies but assimilation occurs sooner or later. In short, migration cannot be regarded as a ‘one off’ solution to the problems caused by ageing. In so far as it can help, it can only do so if there is a continuing large stream of immigrants.

It is important to realise, however, that ageing per se is not necessarily a problem. The difficulty arises because Europe’s social and economic institutions are not well set up for coping with it. Particular attention has been focussed on pensions and other age-related welfare benefits. Europe’s welfare state regimes were mostly designed in the 25 or so years between the end of World War II and the first oil shock, and reflect the character of the economy and society at that time. However, this was a most unusual period. The baby boom led to substantial population growth, and economic growth was at record levels. Between 1948 and 1973 the GDP per head in continental western Europe grew by more than 5 per cent a year. This was far higher than ever seen before or since. The long-run trend is about 2 per cent a year, and we have struggled to reach even that level over the last five years. The pensions and welfare state systems that we have today were based on assumptions that both the population and the economy would continue to grow rapidly. Only now, over 40 years after these assumptions ceased to be true, are governments slowly coming to terms with the changes needed to make Europe’s welfare state systems sustainable.

While attention to the impact of ageing has tended to focus on the costs, especially pensions, in a more general sense what matters is the size of the labour force. Pensions and other welfare benefits represent a form of claim on the stream of wealth being created by the people who are at work. Thus, it is the relative size of the working and non-working populations that is most relevant. All other things being held constant, the low fertility of recent decades implies a marked shrinking of the working population over the next 25 years. The impact will, of course, be greatest in the countries where fertility has fallen most. Barring some miraculous discovery of how to return to rapid productivity gains, there are essentially only two ways in which the impact of this shortfall of workers can be mitigated. Firstly, the proportion of the population who are actually engaged in paid employment (and thus are paying taxes) can increase. Second, more workers can be imported by immigration. Neither of these two policy choices is universally popular. The former option involves persuading more women to work (especially in southern Europe) and delaying retirement for both sexes. Such changes may be just as controversial as advocating large scale immigration.

In short, future ageing is not a problem to be solved, but rather a predicament that we must learn to live with, and significant migration flows are likely to be one of the mechanisms that enables us to do so.